Not just the bottom line: Lean manufacturing may help workers too

New research links management practices to compliance with labor standards in Nike supply chain.

By Brian Eastwood |
September 1, 2016

Greg Distelhorst at the Center for Bits and Atoms at MIT

Businesses tend to adopt lean manufacturing in order to streamline production and improve efficiency, but recent research from a new MIT Sloan professor suggests lean principles can help alleviate poor conditions for factory workers as well.

A studyof the adoption of lean manufacturing by factories within Nike Inc.’s supply chain found that lean adoption was linked to a 15 percent reduction in noncompliance with labor standards such as wages, benefits, and time off.

“The assumption people have is that good business and treating workers well are in fundamental conflict,” said study co-author Greg Distelhorst, who joins MIT Sloan this fall as an assistant professor of global economics and management. “The pretty significant positive impact [of lean manufacturing] we saw in our research was a pleasant surprise. It suggests a way to align business interests in the supply chain with worker well-being.”

Engaging workers a big commitment Amid concerns about delivery time, product quality, and working conditions, Nike began securing commitments from long-time suppliers to implement lean manufacturing in 2002. While mass manufacturing focuses workers on a single task, the lean manufacturing principles popularized by Toyota teach line workers to complete several different tasks. In an apparel factory, this could mean having the skills to sew an entire shirt instead of a single seam, Distelhorst said. Lean also encourages workers to take responsibility for quality control and find ways to improve overall production. In turn, this makes workers more valuable and more important for the factory to retain.

Some prior research connected lean manufacturing to a more engaged and satisfied workforce, but those papers had only focused on a handful of factories. Distelhorst and his co-authors examined audits of more than 300 factories in Nike’s supply chain in 11 countries. About one-third of the factories were in Southeast Asia; another half were in China.

Lean manufacturing was a big commitment for the factories. They needed to appoint managers responsible for lean transformation and send them to Nike’s training facility in Sri Lanka. In some cases, the physical layout of the factory had to change—moving the sewing line and the pressing line onto the same production floor, for example.

This was a major investment by Nike as well, involving a dedicated training facility and years of engagement from its in-house lean staff. “Just going up to the factory door, yelling ‘Lean management,’ and walking away isn’t going to produce the change that you want,” Distelhorst said.

Two years after certifying their first lean manufacturing line, factories on average scored more than half a letter grade higher on their audits than those that had yet to adopt a lean line. This amounted to the 15 percent reduction in labor noncompliance.

The impact was not universal, though. While conditions improved in most countries—namely India, Malaysia, Thailand, and Vietnam—they did not improve in China. The lack of improvement in China is consistent with previous research, also co-authored by Distelhorst, which examined compliance in Hewlett-Packard’s electronics supply chain.

It is not yet understood why Chinese lean-adopters failed to improve, but Distelhorst noted that China’s high rate of worker turnover may reduce the benefit of investing in training, while the country’s dominance of the global clothing industry may make factories in smaller countries more willing to commit to new ideas. Sri Lanka also showed little improvement in Distelhorst’s analysis, but that’s because factories there were already largely compliant with Nike labor standards.

Impacting workers worldwide Distelhorst joins MIT Sloan from the Saïd Business School at the University of Oxford, United Kingdom, where he was an associate professor of international business. He holds a bachelor’s degree in cognitive science from Yale University and a PhD in political science from MIT, with a concentration in Chinese politics. His management research explores business models that are simultaneously profitable and have a positive impact on labor and environmental conditions where trade unions are weak and environmental regulations are lax.

He is particularly committed to China, where he lived and worked for more than five years. “When we find ideas that work, I want them to work in China,” he said.